Muni Broadband Should Be ‘Last-Ditch Effort,’ State Republican Group Says

Friends and foes of municipal broadband networks clashed Wednesday over who should be pre-empted—state or local governments—after a conservative state leadership group released a paper Wednesday saying municipal networks should be deployed only as a last resort. The paper, commissioned by the State Government Leadership Foundation (SGLF) and written by Phoenix Center Chief Economist George Ford, supported state laws restricting local governments from deploying muni broadband networks and condemned action by the FCC to pre-empt those laws. But an advocate for community broadband said it defies logic to argue that states know better than both local governments and the FCC.

The SGLF, a Republican nonprofit that supports small government, decided to weigh in after the FCC pre-empted state laws restricting municipal broadband in Tennessee and North Carolina, said SGLF Chairman Tom Reynolds on a conference call Wednesday. States appealed the order in the 6th U.S. Circuit Court of Appeals (see 1603170031). “All over the country, state laws that limit government ownership of broadband are under threat due to the FCC’s recent action,” said Reynolds, a former House Republican from New York. “This report provides a cohesive economic analysis of the costs and risks associated with government-owned broadband networks.”

The argument that states know best holds no water, said Christopher Mitchell, Institute for Local Self-Reliance director-community broadband networks. It’s ironic the SGLF thinks the federal government shouldn’t tell states what to do, but it’s OK that states should tell local governments what to do, he said in an interview. “There’s nothing magical about a state—being a little bit closer but not too close to the people—that gives them particularly good insight into policy.” Mitchell said he doesn’t always back pre-emption, but in this case, federal pre-emption could stop state pre-emption: “We frown upon higher levels of government telling lower levels of government what they cannot do, but sometimes you need a bigger bully to stop your bully.”

State laws restricting localities from deploying municipal broadband networks are economically ra­tional, Ford said on the SGLF conference call. “This isn’t just a private sector manipulating legislators into doing their bidding.” Ford said his paper is “not an indictment of government-owned networks.” One case where a muni network makes sense is a market where there’s no private network already, and no prospect of one coming, he said.

Even so, muni broadband “should be the last-ditch effort,” Ford wrote in the paper. “The asymmetric subsidization of a government-owned firm with no regard for profit is a legitimate and serious concern be­cause it presents a serious threat to private investment in broadband infrastructure and competition and expos­es taxpayers and captive municipal electric ratepayers to significant financial risks,” he said. It’s not possible for a government to increase competition with a muni network, and entry of one “may be a poison pill for all private sector investment,” he said. The approach may even be anti-competitive, exposing cities to litigation risk, because below-cost prices are predatory, he said on the call. “That is a felony in the private sector.”

Not all municipal networks are subsidized, Mitchell said, but in cities that have used subsidies, fund­ing is often available to the private sector as well. “If you’re going to argue that municipalities shouldn’t use subsidies, then you have to wrestle with the fact the federal government gives the private sector billions of dollars in subsidies, not just in ongoing funds, but the history of having built their networks in a monop­oly environment.” Mitchell rejected the idea that any municipality has acted or is acting anti-competitively: “I know of many municipal networks that allow their competitors to use their infrastructure at reasonable rates, because their goal is not to make a profit on the network, but to make sure that local businesses have the best access as possible.”

A market with only two broadband providers doesn’t necessarily lack competition, Ford said on the call. “If a market is only capable of supporting two firms financially, then three is a crowd. And when a third comes in, somebody’s going to lose money and somebody’s going to have to exit.” A better use of government money may be to form public-private partnerships and subsidize private networks, he said. “What we want here is not more firms,” but “more adoption,” he said. “Cities have begun to realize that this is a financial dog, and that public-private partnerships make more sense in the long run.”

Public-private partnerships can be a smart approach to broadband deployment, but different people have different definitions of what that term means, said Mitchell. “There’s a number of municipal networks that are terrific public-private partnerships,” including in Westminster, Maryland, and Santa Cruz, California, he said. In those cases, a municipality has financed the network and a private company operates it. But Mitchell said that some states, including North Carolina, don’t even allow municipalities to go that far.

Paid for by the State Government Leadership Foundation. Contributions to the State Government Leadership Foundation are not tax deductible as charitable contributions for federal income tax purposes. The SGLF is a non-profit corporation established under and operated in a manner consistent with section 501(c)(4) of the Internal Revenue Code.